QUALCOMM MIGHT LOOK TO SELL FLEET TRACKING BUSINESS

Chip technology revenue dwarfs truck management

In Qualcomm’s early days, when its cellular technology struggled for a foothold in the wireless industry, the company relied on its satellite-based truck tracking business to pay the bills.

Today, sales from the San Diego firm’s fleet tracking arm are dwarfed by those of its smartphone chip and technology licensing businesses, which account for the bulk of its $19.1 billion in revenue.

So now the company is probing whether fleet management has a place in its future.

Last week at the company’s annual shareholder meeting, Chief Executive Paul Jacobs said profits have shrunk for the fleet management division — called Qualcomm Enterprise Services.

“We are in the process of looking at how to restructure it to see whether we can get some more profitability out of it, and we are looking at strategic alternatives with that as well,” he said. “We don’t have a definitive statement about what we’re going to do with it.”

The phrase “strategic alternatives” often is a business euphemism for seeking a buyer.

“It has been strongly rumored that Qualcomm was in the process of selling QES,” said Clem Driscoll, president of consulting and market research firm C.J. Driscoll & Associates. “And it has been rumored that they had selected a specific private equity company.”

Driscoll didn’t recall the name of the private equity firm. He noted that the rumors have been around for a long time, yet no deal has been announced.

“It is possible they’ve decided to reorganize it,” he said. “The difficult thing is — even though this fleet management division was responsible for funding the development of other technologies that allowed Qualcomm to become the company they are today — it is no longer core to Qualcomm’s business.”

It introduced its first product in the late 1980s and over the years has corralled a strong market share in this niche industry.

“They’re not just a fleet management company. They’re the leader,” said Dominique Bonte, vice president and practice director with ABI Research. “Our estimate of the number of trucks equipped with their technology is around 700,000 to 800,000, which is at least double the number of the second company” in the market.

Qualcomm sells costly, feature-packed systems that are popular with operators of long-haul trucking fleets. That market, however, has become saturated, say analysts.

“At one point they were a supplier to 38 or 39 of the top 40 truck haul carriers in the U.S.,” said Driscoll. “They captured all the big guys.”

Over the years, the market has become hotly competitive, with rivals aggressively pricing systems to win customers, say analysts. In 2007, Qualcomm Enterprise Services posted sales of $501 million, according to company filings with federal regulators. Last year, revenue dipped to $371 million.

Today, the fastest growing part of the fleet tracking business is centered on regional and local commercial vehicles, such as delivery vans and buses.

“Although Qualcomm has tried to get into these markets, I don’t know if their high-end hardware scales very well into these lower segments,” said Bonte of ABI Research. “You see other vendors coming at it from a different angle with handsets and tablets — obviously much cheaper technology.”

In February, Qualcomm hired former News Corp. and Fox Network Group executive Jack Kennedy as president of its Enterprise Services division. It also recently introduced new fuel management and brake monitoring products.

Jacobs called Enterprise Services “an interesting business” because it’s related to the connected car market, where Qualcomm hopes to sell more chips.

“The question is can we drive (Enterprise Services) to be a strong business within the context of overall Qualcomm, and we’re working through that right now,” said Jacobs.